Australia

$371.4 million sale of 50% co-ownership interests in five shopping centres to ISPT - another example of A-REITs 'recycling capital' by introducing strategic co-ownership partners on major retail assets, while retaining management and development services

2013-02-07T13:00:00Z

On behalf of Federation Centres (FDC) and since mid-2012, Jones Lang LaSalle has now sold more than $1 billion of 50% co-ownership interests in eight major shopping centre assets.

​AUSTRALIA, 8 FEBRUARY 2013 – Acting on behalf of Federation Centres, formerly Centro Retail Australia, Simon Rooney of Jones Lang LaSalle has sold $371.4 million of half shares in five retail assets to ISPT, on an average yield of 7.49% and at a premium of 2.9% above book value (pre-transaction costs).

The significance of this sale for the Australian retail investment market:

• The sale is a further example of large A-REITs strategically recycling capital by selling down part or whole shares in core assets at book value or a premium to book value;

• More than $1.0 billion of assets have been sold by Jones Lang LaSalle using this strategy for Federation Centres since mid-2012, following the sale to the Perron Group in May last year for $690.4 million comprising a half share in three major regional shopping centre assets (Galleria in Western Australia, The Glen in Victoria, Colonnades in South Australia);

• With more than $1.0 billion in capital raised from these co-ownership arrangements since mid-2012, FDC are well positioned to grow their business through redevelopment projects across their portfolio and further acquisitions of syndicate properties;

• The timing to execute this strategy is right as current pricing being achieved is at or above book value for large retail assets. The total purchase price of $371.4 million reflects a premium of 2.9%. The purchase in 2012 of $690.4 million in assets by the Perron Group represented a 3.7% premium to book value;

• This move by Federation Centres is further evidence of the dominant retail investment theme in 2012 of large A-REITs recycling capital. Of the $6.3 billion of retail investment transactions in Australia in 2012, approximately half (45%) of these were transacted through A-REITs recycling capital;

• Jones Lang LaSalle has a further $1.5 billion worth of retail property in due diligence to potentially transact before June on behalf of vendors that are employing this approach.

The Portfolio offers exceptional scope for growth, generating close to $1 billion in turnover, trading on modest specialty Gross Occupancy Costs (GOC), at close to full occupancy, with each asset providing redevelopment and expansion opportunities.

Australian Head of Retail Investments at Jones Lang LaSalle, Simon Rooney said, “This strategic move by Federation Centres represents yet another example of A-REITs recycling capital by introducing co-ownership partners on major retail assets while retaining development and asset management rights.

This enables A-REITs to unlock capital in order to move forward with development pipelines and in some instances, to fund share buy-back programs and repay debt.”

“The timing to execute this strategy is right as we are achieving book value or above, for core retail assets in the current market. This latest sale for $371.4 million, reflects a premium to book value of 2.9%, and the sale in 2012 for $690.4 million to the Perron Group from Federation Centres represented a 3.7% premium to book value.”

Mr Rooney said the high level of capital being committed to the retail property sector through acquisitions and development implies that many investors are looking through the short term challenges in the retail environment and are confident of the long term outlook.

“Activity in the sub-regional retail sector particularly is gaining momentum and there is a growing pool of investors seeking access to this generally oversold asset class. Sub-regional centre yields are close to their peak for the current cycle and are attractive to a range of investor types. To put this in perspective, the spread between the average regional and sub-regional yields are at their widest levels in the last decade, at 137 basis points. Accordingly, we are seeing increasing levels of capital being allocated to the sector and in 2012 $983.2 million of sub-regional stock transacted, up 51% from 2011,” said Mr Rooney.

ANNEXURE 1: KEY PROPERTY STATISTICS

ANNEXURE 2: PARTIAL INTEREST SALES OF MAJOR RETAIL ASSETS SINCE THE GFC​